In April 2023, SatoshiLabs integrated the CoinJoin transaction-mixing technology into the Trezor Model T hardware wallet.
How effective is it, and will it displace centralized services for preserving on-chain anonymity? We answer these questions together with the Mixer.money Bitcoin mixer team.
CoinJoin is a technology for anonymising Bitcoin transactions, proposed in 2013 by Bitcoin Core developer and Blockstream’s Gregory Maxwell.
The algorithm mixes the bitcoins of several users, then divides them into equal shares and sends them to recipients. As a result a third party cannot reliably identify the participants in the transaction.
CoinJoin’s popularity is aided by its integration into major wallets such as Wasabi, Samourai and Trezor. However, Mixer.money argues that it is also influenced by the technology’s legitimate image:
“CoinJoin blocks dirty bitcoins and guarantees that the participants in the transaction will receive clean coins. At the same time it does not verify recipients, and therefore users can send funds to sanctioned wallets.”
The algorithm is decentralised and secure, but does not guarantee full anonymity. Senders and recipients are recorded on the blockchain, and thus can be identified using on-chain analytics tools:
“Back in 2016, the blockchain-monitoring service Neutrino published a snapshot of a JoinMarket mixer transaction based on CoinJoin, where it identified the amounts of transactions used by exchanges and even the geographical location of the participants in the deal.
And a year ago, speakers at the Association for Computing Machinery (ACM) demonstrated, that CoinJoin is not suitable for reliable anonymisation of transactions”, — says Mixer.money.
Representatives of the service also point to a significant limitation when using CoinJoin:
“The algorithm is effective only with a large number of participants in a transaction. You have to wait for other users to join you, or bring in third parties, thereby risking a breach of anonymity.”
According to Mixer.money, at present, only centralized mixing services can guarantee complete anonymity of Bitcoin transactions:
“The operating algorithms of classic mixers resembled CoinJoin — they simply mixed users’ funds. Modern services provide advanced mixing modes such as our “Full anonymity”, where clients receive clean coins from major exchanges. This is how a mixer truly breaks the link between sender and recipient addresses. Moreover, if you happen to receive dirty coins, you won’t be able to clean them in CoinJoin due to input scoring. In such a case, only a centralized mixer would help.”
Mixer.money — a service for laundering bitcoins and anonymising wallets, which uses major crypto exchanges as sources of clean cryptocurrency.
Earlier, the Mixer.money team explained why the Tornado Cash case cannot be applied to Bitcoin mixers.